Yen weakens as Abe threatens to strip Bank of Japan of independence

Japan's yen fell on Monday, after incoming Japanese premier Shinzo Abe said he
would try to pass laws to strip the Bank of Japan of its independence if it
refused to set a 2pc inflation target.

Mr Abe, who is set to become prime minister on Wednesday after his opposition Liberal Democratic Party (LDP) won this month's lower house election, has put the BoJ at the centre of political debate, urging bolder monetary stimulus to beat deflation.

Sterling bought 136.5 yen in Monday morning trade from 136.2 yen on Friday, after Mr Abe threatened on Sunday to revise a law guaranteeing the BoJ's independence if it did not back his proposed inflation goal. The dollar fetched 84.5 yen from 84.24 yen.

"The yen is finding sellers, even in thin holiday trade," said Jason Hughes, head of premium client management for IG Markets Singapore.

"The changes in political circles in Japan mean we will see a more aggressive stance in weakening," he told AFP.

Mr Abe has said that he will pick someone who agrees with his views on the need for bolder monetary easing to succeed governor Masaaki Shirakawa when his term expires in April next year.

"At this month's policy meeting, the BoJ said it would examine (setting an inflation target) at its next meeting" in January, he said on television on Sunday.

"If it doesn't, we'll revise the BoJ Law and set up a policy accord with the central bank to agree on an inflation target. We may also seek to have the BoJ held accountable for job growth."

The comments are the strongest warning to date on the possibility of revising the law guaranteeing the BOJ's independence from political interference. It is rare for a prime minister or a would-be premier to make explicit demands on what the BOJ should do at its policy-setting meetings.

Mr Abe, who is set to become prime minister on Wednesday after his opposition Liberal Democratic Party (LDP) won this month's lower house election, has put the BoJ at the centre of political debate, urging bolder monetary stimulus to beat deflation.

He wants the BoJ to share with the government a binding 2pc inflation target, double the central bank's current goal, and ease policy "unlimitedly" to achieve it. There is no specific time frame.

Under pressure, the central bank loosened policy on Thursday for the third time in four months by boosting asset purchases. It also said it would consider setting a higher inflation target at its next policy-setting meeting next month.